WorldCom discloses multi-billion dollar fraud

San FranciscoJune 26 2002

A staggering corporate scandal erupted last night when troubled telecommunications company WorldCom disclosed company officials had misstated accounting figures to the amount of $US3.8 billion ($A6.7 billion).

The affair could eclipse the scandal of US energy giant Enron, bringing another corporate disaster to the steps of the Arthur Andersen auditors - a company already in the spotlight on charges of criminal wrongdoing.

According to a statement released by the Clinton, Mississippi-based WorldCom, monies that were actually expenses were booked as capital. This was accomplished outside generally accepted accounting rules, the company stated.

A proper accounting of those funds, the company said, would have resulted reporting losses of $US6.3 billion ($A11.06 billion) in 2001 and $US1.4 billion ($A2.46 billion) for the first quarter of 2002.

In 2001, WorldCom claimed a $US1.4 billion ($A2.46 billion) profit, and $US130 million ($A228.15 million) profit for the first quarter of 2002. Final numbers for those last five quarters won't be available until another audit is conducted, the company said.
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WorldCom's Chief Financial Officer Scott Sullivan and controller David Myers have been sacked, the company said.

The company has notified US securities regulators of the impropriety, WorldCom stated, and has retained an outside law firm to investigate the matter.

WorldCom CEO John Sidgmore said the company's management team was "shocked by these discoveries."

"We are committed to operating WorldCom in accordance with the highest ethical standards."
Almost as an afterthought, WorldCom also stated in its release disclosing the massive scandal that it was laying off 17,000 in a cost-cutting move.

Sidgmore said the company, despite these revelations, "remains viable and committed to a long-term future."

The company is asking its recently hired outside auditors, KPMG, to conduct a new survey of the company's books for the year 2001 and 2002. Also, WorldCom said it has received word from Andersen that in light of these revelations, audits for 2001 conducted by Andersen "could not be relied upon."

Andersen said in its own statement that it had acted in accordance to "professional standards at all times" and it had been kept in the dark about the WorldCom CFO Sullivan's actions.

Last night's revelations prompted fears of what the future may hold for WorldCom, once a high-flying telecommunications company but now struggling under $US30 billion ($A53 billion) of debt.

The company's stock closed yesterday on the Nasdaq at 83 cents - in stark contrast to June 1999 figures, when its stock hit a high of 64.50 US dollars. At its stock high, the company had a market value of $US115 billion ($A202 billion). It has since plunged to below $US1 billion ($A1.8 billion).

Bankruptcy now looms in the company's near future, as the company was in negotiations with US banks over $US5 billion ($A8.8 billion) in credit.

US stocks, especially the already ailing tech sector, are expected to take a hit when trading opens today.

The company, probably best known to US consumers as the company that operates MCI, has been rocked by stories of regulator investigations into its financials.

The news is also expected to cause further embarrassment to the Andersen firm - convicted by a US jury two weeks ago for obstruction of justice in the continuing scandal surrounding energy trader Enron.

Legal experts said this week that the Andersen conviction would set the stage for more criminal trials stemming from the Enron collapse and accounting irregularities.